IN THE SMALL CLAIMS COURT OF NOVA SCOTIA
Citation: Dalrymple Insurance Agency Ltd. v. Peter, 2007 NSSM 5
Date:20070213
Claim: SCCH 274339
Registry: Halifax
Between:
Dalrymple Insurance Agency Ltd
Claimant
v.
Harry Peter
Defendant
Adjudicator: W. Augustus Richardson, QC
Heard: January 30, 2007 in Halifax, Nova Scotia.
Appearances: Eric White, agent, for the Claimant
Harry Peter for himself
By the Court:
[1] The insurance broker in this case claims $1,925.00 plus costs against the client.
[2] The defendant operated a seasonal, snow removal business. He had placed his Commercial General Liability (“CGL”) insurance through the claimant for several years. Because his business was seasonal he often had cash flow problems, and did not always pay his premiums on time. The evidence was however that he always eventually paid them.
[3] The defendant renewed his CGL policy with The Economical Insurance Group through the claimant broker on or about March 28, 2006. The annual premium was $1,925.00. The broker paid the premium, and looked to its client for reimbursement. The client failed to pay in a timely way. The broker accordingly cancelled the policy on or about September 8, 2006. However, since there was a “minimum retained premium” of $1,925.00 there was no refund of any portion of the premium, even though insurance was in place for only roughly six months. So the broker was out of pocket the entire premium, and now claims that amount from his client.
[4] To understand the background to this claim one needs to understand a bit about minimum retained premiums and their rationale.
[5] Premiums on CGL policies are as a rule written as a percentage of the anticipated annual revenues of the insured. Sometimes an insured’s actual annual revenue ends up being less than what had been projected. The insurer in that case would have collected too much premium. In an ideal world the insurer would at year end re-adjust the premium, and rebate the extra premium back to the insured.
[6] There are however administrative and underwriting concerns with the general rule. First, the insurer may be concerned that an insured will artificially deflate its actual revenue, leaving the insurer at risk in exchange for an insufficient premium. Second, in some cases the insured’s exposure is such that no matter what the difference between the anticipated and the actual revenue its operations will have exposed the insurer to a substantial risk. For example, the insured may have traded into the US. To take another example, the insured (as in this case) may operate a seasonal business where most if not all of the risk is incurred during a few months of the entire year.
[7] It is to deal with those difficulties that insurers will sometimes establish what are known as “minimum retained premiums.” This is the minimum premium that the insured will be required to pay (that is, that the insurer will get to keep) for its coverage, regardless of how long the insurance coverage is in place. The minimum retained premium sets a floor below which the premium cannot fall, regardless of the insured’s actual annual revenue and regardless of whether the policy is cancelled mid-term or not.
[8] The claimant here paid the premium and was entitled to be reimbursed by the defendant. The difficulty with the claim arises because the minimum retained premium was set at an amount equal to the annual premium. In other words, the figure of $1,925.00 represented both coverage for an entire year and the minimum retained premium.
[9] The conceptual problem that then arises is this: Even though most of the risk associated with the defendant’s business had been incurred in the winter months, there remained a residual risk, no matter how small, for the rest of the year. If the defendant is to be charged with the minimum retained premium, and if that minimum retained premium equals the annual premium, then the defendant is entitled to coverage for the entire year. After all, that is what he has in effect paid (or at least, is liable to pay).
[10] But the defendant has been denied the benefit of insurance for the entire year. His coverage was terminated by the claimant after roughly six months. It cannot in my view be right that he is charged for what is in effect an entire year’s premium when he only received half a year’s coverage.
[11] In this case the six month’s coverage included high and low risk months. The balance of the six months that were left on the policy when it was canceled also included high and low risk months. On these facts I am accordingly satisfied that the defendant is only liable to pay one-half the premium claimed by his broker. If a broker wants to claim the entire premium in a case where the minimum retained premium equals the annual premium, he should not cancel the policy. He should simply sue for the annual premium.
[12] I will accordingly make an order that the defendant is liable to the claimant for $962.50, being one-half the annual premium, plus costs.
Dated at Halifax, this 13th day of February, 2007
Original: Court File )
Copy: Claimant ) ______________________________
Copy: Defendants ) W. Augustus Richardson, QC
ADJUDICATOR